The Sindh Revenue Board (SRB) exceeded its budgeted tax collection target for fiscal year 2012-13 by 1.653 billion rupees: the budgeted target was 32 billion rupees while actual collections stood at 33.653 billion rupees. This is unprecedented in the tax collection history of this country and fully vindicates Sindh government's strong and sustained opposition to federal government efforts to allow the Federal Board of Revenue (FBR) to collect sales tax on services on its behalf, a provincial subject as per the constitution, and allow the Board to retain a service fee and place the amount collected under the federal divisible pool.
It was Sindh government's contention that the predominant criterion for distribution from the federal divisible pool was population, which worked to the detriment of Sindh, and hence Sindh would not allow the federal government to collect the sales tax on services on its behalf. It may be recalled that at the time the Sindh government came under considerable pressure from its leadership in the federal government as collection by the FBR of sales tax on services was part of the agreement with the International Monetary Fund (IMF) under the 7.6 billion dollar Stand-By Arrangement but Sindh persevered and stood for its constitutional rights. The result was not only in the financial interest of Sindh, but also through example, convinced other provinces to follow suit.
Be that as it may, SRB clearly took the lead and began collecting sales tax on services in fiscal year 2011-12 though some issues on stand-alone services did remain. Punjab followed suit and in its Finance Bill 2012 established the Punjab Revenue Authority (PRA) with the proviso that Punjab would begin collecting sales tax on services, like Sindh, after PRA's structural development. The White Paper on the Budget 2013-14 (Punjab) reveals total provincial 2012-13 sales tax budgeted revenue collections at 40.4 billion rupees with revised estimates giving a total of 37 billion rupees; and budgeted at 62 billion rupees for 2013-14. The White Paper notes that "PRA's GST collection is for 11 months of financial year 2012-13. Though the government has made the necessary legal and institutional framework for collection of sales tax on services through PRA, there is still a lot of potential to be tapped through this tax by extending its base and increasing efficiency in collection." It is heartening that Khyber Pakhtunkhwa government has also announced its commitment to the establishment of its own provincial revenue authority in the budget for the current fiscal year.
Sindh however, has not only taken the lead in being the first province to set up a Board to collect sales tax on services but also leads in raising dependence on its own provincial revenue generation capacity. Sindh's reliance on the divisible pool is less than 21 percent while for Punjab it is more than double ie 59.5 percent and KP's is almost 60 percent though if one adds the hydel profits/royalties payable by the federal government the figure is much higher.
Punjab's provincial taxes and revenue account for only 14.5 percent of its total income - the rest includes its share under the divisible pool, an estimated 278.5 billion rupees from domestic borrowing (23.6 percent), and 29.7 billion rupees (2.5 percent) from foreign assistance. In marked contrast Sindh budget envisages 120.2 billion rupees as its own resources (including the budgeted 42 billion rupees from sales tax on services for 2013-14) which indicate the province's proactive approach in raising its revenue by taking advantage of greater financial autonomy allowed under the eighteenth constitutional amendment.